IMF Comments On Czech VAT Reforms

by Ulrika Lomas, Tax-News.com, Brussels

15 July 2016

In its Article IV consultation for the country, the International Monetary Fund (IMF) has commented on a number of recent value-added tax reforms implemented by the Czech Republic.

From January 2016, VAT-registered persons in the Czech Republic were required to provide the tax authority with more information on their transactions, as part of efforts to tackle VAT fraud announced in late 2014. VAT-registered persons are required to file a monthly "control message," or "inspection report," to enable the tax agency to monitor their VAT affairs more effectively outside quarterly filing cycle. The report should include information on any transactions undertaken and the counterparty involved.

Also since the start of 2016, companies were required to electronically file their VAT returns along with the inspection reports.

Earlier, at the start of 2015, the Czech Republic introduced a third value-added tax rate, of 10 percent. This was introduced on food, which had been subject to a 15 percent rate, and books, baby food, and medicines, which had been subject to the headline VAT rate of 21 percent.

In its report, the IMF said authorities should resist shifting more
items to the reduced VAT rate, following the cut in VAT on meals and non-alcoholic drinks
that are served in restaurants. Future tax cuts should be part of a
broader review of the tax system, it said.

The IMF said the measures to fight tax evasion, such as electronic VAT reporting and the gradual rollout of
electronic evidence of sales, are expected to begin bearing fruit in the near term.

The IMF said the recent VAT reporting changes should result
in an improvement of the revenue side that should enable the financing of government priorities
on the expenditure side or reduce the tax burden in the future. "In 2016, revenues should decrease
due to the reduced use of funding from the EU. Nevertheless, the decrease will be mitigated by
incomes from taxes and social security contributions. Indirect tax revenues should increase in
2016, mainly due to VAT collection resulting from the newly introduced electronic VAT
reporting. Work is also under way on the new act on income taxes," the IMF said.

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